The Coin Center, of Washington, points out that against international trends Banxico “would deny the safe access of Mexicans to financial technologies”.
The Coin Center warns about what could happen with the new regulations proposed by the Central Bank of Mexico (Banxico).
Coin Center is the main non-profit research and defense center focused on the public policy issues facing cryptocurrency and decentralized computing technologies such as Bitcoin and Ethereum.
The Mexican central bank, acting under the authority of a recently enacted fintech law, proposed new regulations last week that would effectively prohibit cryptocurrency exchanges in the country. This is a wrong policy that we expect the central bank to reconsider.
Exchanges of cryptocurrencies that are traded in fiduciary currency require access to the local banking system. Under the new law, that access will be severely impeded. While the central bank can claim that they are not “banning” exchanges, the effect will be the same. As originally planned, the new fintech law should have opened Mexico to innovation by not only allowing cryptographic currency exchanges to continue to operate, but also by providing a reasonable path towards better regulation as full-fledged financial institutions. However, the central bank has now proposed to do the opposite, closing the door to these promising new technologies by prohibiting any regulated financial institution from offering clients exchange, transmission or custody of cryptocurrency services.
Disrespectful ignorance
There is an emphasis on the paternalistic and derogatory attitude towards the intelligence of the citizens expressed by the bank:
The proposal of the Mexican central bank unfortunately demonstrates a contemptuous ignorance of how these technologies work. The reason for the proposed rule is impressive: that the “complexity of the mathematical and cryptographic processes that underlie digital assets” and the “difficulty for users to understand these processes”, together with the volatility of digital assets, present a problem of asymmetry of information that apparently can only be solved through the quarantine of consumers of direct contact with crypts. Because cryptocurrencies are such complicated technologies, according to the argument, average citizens can not understand how they work and, therefore, should not be allowed to buy them.
In addition to being aggressively patronizing in suggesting that the average Mexican does not have the capacity to make their own decisions on these issues, the argument is also absurd. The average person has no idea how a car works and yet people can drive them. An approach to “protect” consumers by eliminating regulated exchanges is no different from not promulgating automobile safety standards for car manufacturers and, instead, prohibiting people from buying cars in the first place and allowing only buses on the roads. In fact, the mathematics and cryptography that underlie a cryptocurrency such as Bitcoin are the same SHA-256 and ECDSA encryptions that underlie secure websites and Internet banking, should the public be protected from these services with a ban?
Protect consumers is the most important thing
It is a waiver of the regulator’s responsibility to protect consumers and simply subject them to more dangerous practices from suppliers outside of Mexico or from those who are willing to break the law. If these rules were enacted, they would deny Mexicans the benefits of cryptocurrency technology and, at the same time, would not protect them from the risks. No other major economic power has adopted such an extreme and unjustified approach to regulate cryptocurrencies, and several have provided sound regulatory frameworks that protect clients while allowing innovation to flourish.
Cryptocurrencies, like the Internet through which their networks are run, are accessible worldwide. If there are no exchanges based in Mexico, Mexicans will inevitably use exchanges based in other jurisdictions. Some of these exchanges abroad can be regulated sensibly by more progressive governments, but others can be dishonest operations that deliberately evade any regulatory jurisdiction. A general ban, without a doubt, will push technological innovation to other countries, but it will also push the users of the Mexican cryptocurrency to the clandestine markets and the dangers that lurk in them.
Call to say
There is a currently open 60-day period in which the public can send comments on this proposed rule. Coin Center intends to submit a comment and we hope others will do so as well and help explain to the central bank why its approach would not only make it an outlier among the industrialized nations, but would also hurt the consumers it is trying to protect.